If you find yourself struggling with multiple personal loans, you are not alone. Whether it’s mortgage issues, interest on credit cards or something similar, many people today are struggling with debt.
Debt consolidation allows you to combine all your loans into one, so you can stop paying excess fees and varied interest rates and stop making multiple monthly repayments.
When should you be considering debt consolidation?
If you have trouble keeping up with monthly repayments. In this case, debt consolidation can reduce the number of repayments and simplify the management of your debt. This is especially if your cards you are nearing the credit limits of your cards or you’ve already reached your limit.
Debt consolidation loans might need to be considered for larger credit card debts or if you want to consolidate a range of different credit types.
If you have equity in your home. In this scenario, the interest rate your home loan attracts would be considerably lower than that of a personal loan or credit card, so debt consolidation could be a viable option for you to consider.
If you have bad credit and a large amount of debt. You’re able to consider a debt consolidation loan in order to take back control of your finances.
How to consolidate debt?
1: Gather information about all your debts
To take control of your debt it is essential to know how much debt you have. Review your statements and work out the following:
How much do you owe on each debt?
The interest rate you are paying on each debt
What are the monthly fees on each debt?
Any break costs.
2: Work out how much you can put towards paying off your debt each month
Next, it’s good to know where your money is going and how much you have coming in. You need to work out how much you can realistically afford to repay each month.
3: Explore debt consolidation options
Now that you know where you stand – how much debt you owe and how much you can put towards your repayments – it’s time to set up a plan to clear it.
What debt can I consolidate?
It’s possible to consolidate a variety of debts using one of these loans. Common types of debt that are consolidated include the following:
Personal loans. This is a common type of debt that is consolidated. You can take out a debt consolidation loan to consolidate two or more separate personal loans, a personal loan and another type of credit, or even refinance a personal loan to one with a lower rate and/or fees.
Credit cards. If you have a large outstanding balance due on your credit card, then you can consider taking out a personal loan to pay it off. This is often an option when you want to consolidate your credit card as well as another debt or if you aren’t a candidate for a balance transfer.
Store/charge cards. Balances can easily increase on store and charge cards as they do on credit cards, making them another type of debt people choose to consolidate.
Other credit accounts. Depending on the loan you take out, you may also be able to consolidate other types of debt. This can include private loans, debts to utility companies (i.e. electricity, phone, Foxtel), etc. See what the credit provider will allow you to consolidate.
Debt Consolidation options
Refinance or pay out your current personal loan: You can use a personal loan to pay off existing debts, but since this is an unsecured line of credit you might want to look for a competitive fixed interest rate.
Home Loan Equity: A home equity is a secured line of credit that uses the equity in your house as collateral. Getting a home equity consolidation loan can make sense if it relieves your debt considerably, or if it leads to savings in the form of lower interest rates and costs. Keep in mind that while the interest rates for these loans are often quite low, the fees can be considerable and you’re also risking your home should you default on your repayments. Make sure you compare your debt consolidation loan options to find the best one for you.
If you plan on paying off your debts ahead of time and save in the form of interest paid, debt consolidation can be a good idea — but how do you work out if it’s a good option for you? Peel Finance Brokers can help you to find the right option for you.